Chapter 11: Market Intervention

1. Refer to the following demand and supply schedules for a good.

If the government sets a maximum price control at $12,

(1) the total expenditure will decrease by $800.

(2) there would be a surplus of 30 units.

(3) the quantity transacted will decrease by 20 units.

• A. (1) and (2) only

• B. (1) and (3) only

• C. (2) and (3) only

• D. (1), (2) and (3)

2. Refer to the following demand-supply diagram.

If the government lowers the price ceiling from P1 to P2, the total expenditure of consumers

• A. will increase.

• B. will decrease.

• C. will remain unchanged.

• D. may increase, decrease or remain unchanged, depending on the price elasticity of demand.

3. As shown in the following diagram, the government of Country A has imposed a price ceiling on good X at P.

If there is a technological improvement in the production of good X, the

• A. excess supply will be larger.

• B. excess demand will be larger.

• C. quantity transacted will increase.

• D. total revenue will decrease.

4. The following diagram shows the market situation of good X.

If the government imposes a price floor on the good at P3, the quantity transacted of the good will be __________ .

• A. Q1

• B. Q2

• C. Q3

• D. Q4

5. Suppose the government raises the effective minimum wage. Which of the following statements are CORRECT?

(1) It will be more difficult for low-skilled workers to get a job.

(2) There will be an excess supply of workers.

(3) Total wage earnings of low-skilled workers will increase.

• A. (1) and (2) only

• B. (1) and (3) only

• C. (2) and (3) only

• D. (1), (2) and (3)

6. Refer to the following demand and supply

schedules for a good.

There is a minimum price control of $8. Suppose the government lowers the price control by $3. As a result,

• A. the market price would drop by $3.

• B. there would be a shortage of 8 units.

• C. the total revenue would decrease by $12.

• D. the quantity transacted would increase by 3 unit.

7. Imposing an effective quota on a good will not lead to an increase in its equilibrium price if the demand for the good is

• A. elastic.

• B. inelastic.

• C. unitarily elastic.

• D. perfectly elastic.

8. Refer to the following demand and supply schedules for a good.

If the government raises the quota from 20 units to 40 units, the market price will

• A. increase by $2.

• B. increase by $4.

• C. decrease by $2.

• D. decrease by $4.

9. If the government abolishes the quota on imported workers,

• A. the number of local workers employed will increase.

• B. the wage rate of imported workers will increase.

• C. the total wage earnings of local workers will decrease.

• D. the total wage earnings of imported workers will increase.

• A. E1

• B. E2

• C. E3

• D. E4